tag:blogger.com,1999:blog-20433063166413236312024-03-04T21:26:29.117-08:00Governance Beyond BoardroomDr Andrew Tuckerhttp://www.blogger.com/profile/00202190276231758261noreply@blogger.comBlogger15125tag:blogger.com,1999:blog-2043306316641323631.post-71231660287116723212011-10-04T01:49:00.000-07:002011-10-04T01:50:17.825-07:00UBS culture problems<div dir="ltr" style="text-align: left;" trbidi="on">Interesting <a href="http://www.ft.com/cms/s/0/813a452e-edb5-11e0-a9a9-00144feab49a.html#axzz1ZnfpIXqt">analysis</a> piece in today's <i>Financial Times</i> by Megan Murphy and Haig Simonian. They argue that leading investment banks are struggling to redefine their identities amid tough market conditions. While the article singles out UBS, also in the frame are Bank of America Merrill Lynch, Morgan Stanley, and Royal Bank of Scotland.<br />
<br />
As interim UBS CEO Sergio Ermotti wrote to all his staff last week, "We must now summon our collective strength to demonstrate what UBS stands for." About time too, many UBS employee would say. As Murphy and Simonian note:<br />
<blockquote><span class="Apple-style-span" style="line-height: 18px;"><span class="Apple-style-span" style="font-family: inherit;">UBS insiders say the constant influx of new staff, plus a virtual merry-go-round at the top, had already made it hard to knit together a cohesive culture. The investment bank has reshuffled its executive committee more than 10 times in three years, bringing in senior people from Deutsche Bank and other rivals who frequently brought clashing management styles. Insiders cite a structure where the equities and fixed income divisions are led by four global co-heads – only one of whom worked at the bank before July 2009 – as particularly problematic.</span></span></blockquote><span class="Apple-style-span" style="font-family: inherit; font-size: 16px; line-height: 18px;">Across the investment banking sector, efforts to find sustainable profit lines now like the US Army's hunt for Saddam Hussein's missing WMD - great prizes promised for those units that find the 'treasure' but no evidence that it actually exists.<br />
</span><br />
<span class="Apple-style-span" style="font-family: inherit; font-size: 16px; line-height: 18px;">So what does UBS (and indeed the other banks) stand for now? It's time for industry leaders to stop blaming markets, regulators, rogue traders for their woes and start telling us where they stand amidst the maelstrom. </span></div>Dr Andrew Tuckerhttp://www.blogger.com/profile/00202190276231758261noreply@blogger.com0tag:blogger.com,1999:blog-2043306316641323631.post-62393800752936646992011-09-21T07:16:00.000-07:002011-09-21T07:17:47.960-07:00Where do we go from Vickers?<div dir="ltr" style="text-align: left;" trbidi="on">After a long summer's lobbying, the final report of the Independent Commission on Banking (the Vickers' Commission) was finally published earlier this month. After digesting the report and its commentary (including the <a href="http://www.bbc.co.uk/news/business-14943084">massive governance breech</a> at UBS which nicely demonstrated the timeliness of the debate), the outcomes for the governance and culture agenda appear to be:<br />
<br />
<ul style="text-align: left;"><li>the proposed ring-fence around banks' retailing operations will entail measuring and managing cultures on both sides of the fence. As Vickers says:<span class="Apple-style-span" style="font-family: inherit;"> <span class="Apple-style-span" style="color: #1a1a18;"><span class="Apple-style-span" style="font-family: inherit;">'</span></span></span><span class="Apple-style-span" style="color: #1a1a18;"><span class="Apple-style-span" style="font-family: inherit;">It is difficult for regulations to work effectively if they are operating against the grain of corporate culture. So, alongside financial restrictions, the governance of a ring-fenced bank should reflect and encourage an appropriate relationship with the rest of the group.</span></span><span class="Apple-style-span" style="color: #1a1a18;"><span class="Apple-style-span" style="font-family: inherit;">' (74) A view endorsed in a <i>Financial Times</i> <a href="http://www.ft.com/cms/s/0/6f49b7cc-ddf3-11e0-a391-00144feabdc0.html#axzz1Yav5thXy">editorial</a>.</span></span></li>
<li><span class="Apple-style-span" style="color: #1a1a18;"><span class="Apple-style-span" style="font-family: inherit;">the onus of managing corporate culture will fall on banks' management rather than the regulator. As Vickers says: 'While corporate culture cannot be directly regulated, these measures should assist in building a separate, consumer-focused culture in UK retail banking, and a distinctive identity within the ring-fenced bank.' (76) A view partially endorsed in a <a href="http://www.adamsmith.org/blog/finance/criticisms-of-vickers/">briefing</a> by the right-wing think tank Adam Smith Institute</span></span></li>
<li><span class="Apple-style-span" style="color: #1a1a18;"><span class="Apple-style-span" style="font-family: inherit;">there is much to play for here still. <span class="Apple-style-span" style="font-family: inherit;">As </span></span></span><span class="Apple-style-span" style="line-height: 18px;"><span class="Apple-style-span" style="font-family: inherit;">Michael Cohrs (member of Bank of England’s Financial Policy Committee) said in a <i>Financial Times</i> <a href="http://www.ft.com/cms/s/0/759e450a-dee5-11e0-a19c-00144feabdc0.html#axzz1Yav5thXy">roundtable</a> on Vickers: <span class="Apple-style-span" style="font-family: inherit;">'</span></span></span><span class="Apple-style-span" style="line-height: 18px;"><span class="Apple-style-span" style="font-family: inherit;">The report does talk a lot about culture and the need for cultural change between certain types of banking operations. I think if I were critical of the report the one place would be maybe not enough attention was put on how do you create or how do we create different cultures, the retail culture which is quite different from the wholesale culture.'</span></span></li>
</ul><div><span class="Apple-style-span" style="line-height: 18px;">In view of this ongoing debate, the 'Governance Beyond the Boardroom' team has brought together a number of researchers and practitioners to support the next stage of project. The project team is now led by Dr Andrew Tucker (Brunel University) with Dr Simon Ashby (Plymouth University) and Prof Ken d'Silva (London South Bank University). A number of banks and relevant organisations have joined the advisory board and committed their time to help the project operationalise the governance culture toolkit framework published <a href="http://www.business.bbk.ac.uk/news-and-events/governance-beyond-the-boardroom">here</a></span><span class="Apple-style-span" style="line-height: 18px;"> in January. </span></div><div><span class="Apple-style-span" style="font-family: inherit;"><br />
</span></div><div><span class="Apple-style-span" style="font-family: inherit;">The main outputs that we expect to deliver are as follows:</span></div><ul><li style="font: 12.0px 'Times New Roman'; margin: 0.0px 0.0px 0.0px 0.0px;"><span style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: inherit; font-size: small;">A process tool that highlights the essential stages and decisions associated with the implementation of effective governance arrangements.</span></span></li>
<li style="font: 12.0px 'Times New Roman'; margin: 0.0px 0.0px 0.0px 0.0px;"><span style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: inherit; font-size: small;">An audit tool, which allows institutions to compare themselves against identified examples of good practice and assess the gaps in their own practice.</span></span></li>
<li style="font: 12.0px 'Times New Roman'; margin: 0.0px 0.0px 0.0px 0.0px;"><span style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: inherit; font-size: small;">A suite of recommended metrics (both qualitative and quantitative) that are used to monitor the performance of new or existing governance arrangements. This will include metrics that allow institutions to assess their governance culture.</span></span></li>
<li style="font: 12.0px 'Times New Roman'; margin: 0.0px 0.0px 0.0px 0.0px;"><span style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: inherit; font-size: small;">Case studies to illustrate good practice.</span></span></li>
<li style="font: 12.0px 'Times New Roman'; margin: 0.0px 0.0px 0.0px 0.0px;"><span style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: inherit; font-size: small;">Face-to-face training sessions and bundled e-learning modules.</span></span></li>
</ul><div><span class="Apple-style-span" style="font-family: 'Times New Roman';">If you would like to be part of the ongoing project, we look forward to hearing from you. Please contact andrew.tucker@brunel.ac.uk.</span></div></div>Dr Andrew Tuckerhttp://www.blogger.com/profile/00202190276231758261noreply@blogger.com0tag:blogger.com,1999:blog-2043306316641323631.post-9971994301615545952011-04-13T01:10:00.000-07:002011-04-13T01:10:14.273-07:00The costs of the wrong culture<div dir="ltr" style="text-align: left;" trbidi="on">Intriguing <a href="http://www.ft.com/cms/s/0/3adcb3e6-5c9c-11e0-ab7c-00144feab49a.html#axzz1ISBZQbAr">article</a> in last week's <i>FTfm</i> section (the Financial Times's weekly review of the Fund Management Industry) on an unpublished draft report from IBM's Institute for Business Value that states:<br />
<blockquote>"The document, seen by FTfm, claims the industry is 'paid too much for the value it delivers' and that 'destroying value for clients and shareholders is unsustainable'".</blockquote>The report goes on to warn of large headcount reductions in sell side research, credit rating agencies research, traders, fund of hedge funds, hedge funds, traditional portfolio managers, and financial advisers.<br />
<br />
The question is, in an industry that is allegedly singularly motivated by delivering return on investment, how is there so much slack in the system? Beyond any discernible business reason, the fund management industry seems to have a culture that tolerates massive waste, duplication, and value destruction.<br />
<br />
According to <i>FTfm</i>, the unpublished IBM report puts a figure of '$1,300bn' on this egregious waste. Getting this culture more aligned with strategy has the potential for huge cost savings and much greater client and shareholder value.<br />
<br />
Update: Peter Elston, investment strategist at Aberdeen Asset Management Asia, defends the industry <a href="http://www.ft.com/cms/s/0/e9433bec-6207-11e0-8ee4-00144feab49a.html#axzz1JEVThcTB">here</a> by arguing that (i) the costs of slack in the system are overstated and (ii) acceptable when compared to the potential privatised benefits of beating the market. </div>Dr Andrew Tuckerhttp://www.blogger.com/profile/00202190276231758261noreply@blogger.com0tag:blogger.com,1999:blog-2043306316641323631.post-77459605293750826632011-04-12T05:56:00.000-07:002011-04-12T05:56:38.844-07:00Does Vickers Commission Interim Report change the conversation?<div dir="ltr" style="text-align: left;" trbidi="on">So the Independent Commission on Banking has provided an answer to one of the big questions raised by the financial crisis. We can't stop a repeat but we can mitigate its impact.<br />
<br />
Despite the predictable sound and fury around the <a href="http://s3-eu-west-1.amazonaws.com/htcdn/ICB-Interim-Report-Executive-Summary.pdf">Interim Report</a> from the ICB, the big banks seem to have won the argument for resisting a break up. The Commission's structural approach is to inject more competition into the high street banking sector, ring-fence retail from investment operations, and make the cost of capital more realistic.<br />
<br />
Intriguingly, these changes may have significant effects on banks' culture although this is not explicitly mentioned by Vickers.<br />
<br />
<ul style="text-align: left;"><li>Greater high street competition will drive transparency on fees, simplicity in products, and improved customer service</li>
<li>Ring-fencing the retail operations, even if some cross-subsidisation remains, will help the high street side push back against the higher risk-takers from the investment side</li>
<li>More market-rate capital will undermine the 'fingers-in-the-till' mentality of the investment side using the retail side as a source of cheap credit</li>
</ul><div>Unless George Osborne perpetrates an even larger Government U-turn than tuition fees, most of the Vickers recommendations will ultimately change the governance culture of the banking sector. Whether this is for the better depends on the small print, as ever. However, Vickers seems like the tentative beginnings of a new conversation for UK Banking. Should we tell the cheering bankers that they aren't out of the woods yet?</div></div>Dr Andrew Tuckerhttp://www.blogger.com/profile/00202190276231758261noreply@blogger.com0tag:blogger.com,1999:blog-2043306316641323631.post-26189773883852486052011-03-10T02:05:00.000-08:002011-03-10T02:05:35.810-08:00McKinsey's culture in question<div dir="ltr" style="text-align: left;" trbidi="on"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgM2caUF2MAvfMkXSbymXOs5VJlZqBpXUtv5r-7A3fI3cwJ4j_JqCrKb3MERha4uB7r8AswjZYxdVZu0ZCdPMqK84uFWBWvclKl43ClX5X3WTF2St16msIMTaaWqjwvzNnEJurfiZk0UIQ/s1600/mckinsey.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="150" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgM2caUF2MAvfMkXSbymXOs5VJlZqBpXUtv5r-7A3fI3cwJ4j_JqCrKb3MERha4uB7r8AswjZYxdVZu0ZCdPMqK84uFWBWvclKl43ClX5X3WTF2St16msIMTaaWqjwvzNnEJurfiZk0UIQ/s200/mckinsey.jpg" width="200" /></a></div>An interesting column in today's <i>Financial Times</i> by <a href="http://www.ft.com/cms/s/0/144e6728-4a87-11e0-82ab-00144feab49a.html#axzz1GBjOLsSV">John Gapper</a>. He argues that the charging of the ex-CEO Rajat Gupta with insider trading is a severe strain on the firm's perceived governance culture. Gapper makes the perceptive point that McKinsey that:<br />
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 12px;"></span><br />
<blockquote><span class="Apple-style-span" style="font-size: x-small;">It is hard to believe that trading on price-sensitive inside information from clients is rife inside the puritan, strait-laced firm – if evidence of that emerged, it would soon collapse, as Arthur Andersen did after Enron. But the accumulation and sharing of privileged knowledge is integral to how it works and it cannot afford its corporate and government clients to pull the shutters down.</span></blockquote><span class="Apple-style-span" style="font-family: Times; font-size: small;"></span><br />
<div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">This goes to the heart of McKinsey business model and is another useful piece of evidence in establishing the link between corporate culture and strategy. It is also an interesting reflection on a weakness of the McKinsey 7S model - that Shared Values (at the heart of the model) may well not be shared with your key client base. I wonder what their own consultants would advise?</div><div><br />
</div><div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 12px;"></span></div><br />
</div>Dr Andrew Tuckerhttp://www.blogger.com/profile/00202190276231758261noreply@blogger.com0tag:blogger.com,1999:blog-2043306316641323631.post-9360209181676982832011-03-09T01:14:00.000-08:002011-03-09T01:14:50.781-08:00Is the FSA going soft on governance culture?<div dir="ltr" style="text-align: left;" trbidi="on"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoY32WQ94RLJqmM33MZ604ASwkCVzDKfqLQD_G1ryIkgS1XJsb-gZ2ZlhB6bnGpq1p49P5n4ckPuD0jcCAfuk9R4-At3BeyYUqOksoOPQhKgeEjp5KiodPvD-CCexCaCvSFRVM1MeOz3E/s1600/fsa-logo.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="186" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoY32WQ94RLJqmM33MZ604ASwkCVzDKfqLQD_G1ryIkgS1XJsb-gZ2ZlhB6bnGpq1p49P5n4ckPuD0jcCAfuk9R4-At3BeyYUqOksoOPQhKgeEjp5KiodPvD-CCexCaCvSFRVM1MeOz3E/s200/fsa-logo.jpg" width="200" /></a></div>Interesting <a href="http://www.fsa.gov.uk/pubs/speeches/0218_at_clare_college.pdf">Clare Distinguished Lecture</a> in Economics and Public Policy speech recently by Lord Adair Turner, Chairman of the FSA, on whether the current reforms of the financial services sector are going far enough. Short answer is No - because the current fixes patch up the existing system without reforming it sufficient to prevent another crisis.<br />
<br />
As rightly Lord Turner points out:<br />
<blockquote>An appropriately radical response to the financial crisis requires that we take into account explanations of financial market imperfection and instability which go beyond the identification of specific information asymmetries or incentive problems.</blockquote><br />
However, having rightly pointed to broader fixes that include learnings from behavioural analysis, insuperable information asymmetries (a la Joseph Stiglitz), and the inherent irreducibility of some uncertainty (a la Frank Knight), Lord Turner simply suggests regulators should retain a discretionary macro-prudential capacity to intervene when they smell danger:<br />
<blockquote>As a result, fixing poor incentives - such as those created by 'too big to fail' banks or by perversely designed bonus arrangements - while a necessary part of the regulatory response, cannot be sufficient. Our policy response needs also to include policies which focus on the complex dynamics of the whole system, above all through higher equity capital requirements, and macro-prudential policies which can arise even in a system where individual agents' incentives were always well designed.</blockquote>Surely the recent crisis has demonstrated the FSA's shortcomings in acting as an all-seeing <i>deus ex machina? </i>Instead, they should actively research micro-prudential tools with which to regularise behaviour of individual agents. Something with which this group has made some headway. We await Lord Turner's call...</div>Dr Andrew Tuckerhttp://www.blogger.com/profile/00202190276231758261noreply@blogger.com0tag:blogger.com,1999:blog-2043306316641323631.post-21712580746646037312011-01-19T10:17:00.000-08:002011-01-19T10:17:17.731-08:00The Good and the Bad of Governance Beyond Boardroom<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnTSQVNEAL6_0Tvag2Vxwfs-hNKW-u_BhOY0AcA0ZhddqHKcxef68UhZcd9kp5hdu3MzdXPxnBA7IxLoG0BrZ7f7CyUP0PkjU6dnqf-nxf2JhNfQXZrJV-cMj84w8W84FdN6iV9w8qHm8/s1600/goldman-sachs-logo.gif" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="199" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnTSQVNEAL6_0Tvag2Vxwfs-hNKW-u_BhOY0AcA0ZhddqHKcxef68UhZcd9kp5hdu3MzdXPxnBA7IxLoG0BrZ7f7CyUP0PkjU6dnqf-nxf2JhNfQXZrJV-cMj84w8W84FdN6iV9w8qHm8/s200/goldman-sachs-logo.gif" width="200" /></a></div><br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgG0QtGt25M1vI5Yd8ZrWOeRRlKlalWVlcPEde7At5oon0ZU-iXb0WQcz77XEpaADRJtcoB4vJcIxfLJXcZnJcDK2OKo3xNlS5Cp97YZKbF0pA3c6kfmrS4VNRa4bXJwz7umm1XPTCLimo/s1600/Barclays-logo.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="134" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgG0QtGt25M1vI5Yd8ZrWOeRRlKlalWVlcPEde7At5oon0ZU-iXb0WQcz77XEpaADRJtcoB4vJcIxfLJXcZnJcDK2OKo3xNlS5Cp97YZKbF0pA3c6kfmrS4VNRa4bXJwz7umm1XPTCLimo/s200/Barclays-logo.jpg" width="200" /></a></div>Running counter to the current commentary on the financial services sector, a big cheer to Goldman Sachs and a big raspberry to Barclays for today's reports.<br />
<br />
On the upside, it appears that Goldman's new governance culture (see previous post) does have some teeth. It is <a href="http://www.bloomberg.com/news/2011-01-18/goldman-sachs-foreign-exchange-sales-head-kevin-connors-is-said-to-depart.html">reported</a> today that Kevin Connors, co-head of global forex sales in G10 currencies, was fired last week for breaking internal compliance rules. However, and here the cheers are deserved, he had not acted illegally nor harmed clients. So undermining the firm's culture and reputation, even if no external rules have been broken, is now a sackable offence. I wonder if other financial services firms will follow suit...<br />
<br />
On the downside, Barclays was fined £7.7m by the FSA for misselling Aviva funds. The <a href="http://www.moneymarketing.co.uk/adviser-news/advisers-say-barclays-fine-is-a-damning-indictment-of-bank-sales/1024771.article">reaction</a> from IFAs has been a little predictable. However, this fine comes on top of having to refund £60m to complainants. This is a significant governance situation and evidence of a sales culture misaligned to corporate strategy. Whether senior management announces a recovery programme in the next few days will be a sign of how seriously they are taking their governance culture mistakes.Dr Andrew Tuckerhttp://www.blogger.com/profile/00202190276231758261noreply@blogger.com0tag:blogger.com,1999:blog-2043306316641323631.post-18239893464504189732011-01-18T01:29:00.000-08:002011-01-18T06:21:08.211-08:00Governance reform in the NHS<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOMIr8c7eLWBHWfjgS1T_wAvsZ-5Cdvv_KT-jUo9uTxSe65sm6BkioicFLkudtysLyZdpxKO2AHxEnb47pWnSkOgB_r7jKf5Rb7rm1VqqZvIkT32wUf2N8t6swJdM88BV-VOHkRl878Zk/s1600/NHS_Logo.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="128" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOMIr8c7eLWBHWfjgS1T_wAvsZ-5Cdvv_KT-jUo9uTxSe65sm6BkioicFLkudtysLyZdpxKO2AHxEnb47pWnSkOgB_r7jKf5Rb7rm1VqqZvIkT32wUf2N8t6swJdM88BV-VOHkRl878Zk/s320/NHS_Logo.jpg" width="320" /></a></div>In all the commentary this week around the <a href="http://www.bbc.co.uk/news/health-12177084">Government's plans</a> to radically devolve power in the NHS, there has been little about the governance challenge this represents (honourable mention to the exceptions: the Chartered Management Institute <a href="http://www.managers.org.uk/news/cmi-calls-good-management-be-heart-nhs-reforms">here</a> and Michael Tremblay <a href="http://www.policyinsider.com/?p=1094">here</a>).<br />
<br />
Are GPs ready to take control of 80% of the NHS's £100bn annual budget? While some run thriving SMEs, the management challenge to take on commissioning their services is a step change from a small rural practice.<br />
<br />
In particular, do GPs have the right governance culture for their new role? By this I mean no disrespect to GPs but simply question whether their existing culture - necessarily elitist, authoritative, closed, collegiate - is the right culture to fit the new NHS strategy.<br />
<br />
Working with a plethora of private sector providers requires acute attention to contractual detail, considerable strategic vision of the kind of services mix required, entrepreneurialism, innovation, and (dare I say it) some marketing nous as the reforms bed down and GP consortia start competing for business.<br />
<br />
According to my insider sources, these are not the cultural values taught in medical schools nor fostered by the Royal Colleges. It seems like the NHS reforms represent a considerable research and practice opportunity for Governance Beyond the Boardroom network. Please drop me a line if you wish to pursue it.Dr Andrew Tuckerhttp://www.blogger.com/profile/00202190276231758261noreply@blogger.com0tag:blogger.com,1999:blog-2043306316641323631.post-53847076146228453742011-01-14T07:37:00.000-08:002011-01-14T07:37:53.264-08:00Goldman Sachs governance reportAs an example of what leading financial service firms are doing in terms of their governance culture, this week's <a href="http://www2.goldmansachs.com/our-firm/business-standards-committee/index.html">report</a> from Goldman Sachs sets three interesting precedents for the sector.<br />
<br />
<b>1. The extent of the reputational damage when a firm's actions stray so obviously from its espoused business standards. </b><br />
<br />
Goldman's first business principle is: '<span class="Apple-style-span" style="font-family: inherit;">Our clients' interests always come first'. This ideal looks a little hollow as the details of Goldman's <a href="http://opinionator.blogs.nytimes.com/2011/01/04/friends-with-benefits/?scp=8&sq=goldman%20sachs&st=cse">investment</a> in Facebook have leaked out. Their last business principle is: 'Integrity and honesty are at the heart of our business'. Again, hard to square with the <a href="http://www.ft.com/cms/s/0/f1dcbf2e-1f56-11e0-8c1c-00144feab49a.html#axzz1AvMzyxCG">news</a> that Goldman lost an additional $5bn in proprietary trading in 2008 but have only just announced the loss.</span><br />
<br />
<b>2. Getting your culture right is key to overcoming reputational woes.</b> As the report notes (p. 6):<br />
<blockquote>'The firm's culture has been the cornerstone of our performance for decades. We believe the recommendations of the Committee will strengthen the firm's culture in an increasingly complex environment. We must renew our ... constant focus on the reputational consequences of every action we take. In particular, our approach must be: not just "can we" undertake a given business activity, but "should we".'</blockquote><br />
<b>3. Firms are right to be concerned about the intuitive link between culture, governance, and reputation.</b> As the report says (p. 8):<br />
<blockquote>'[Goldman's reputation] can be affected by any number of decisions and activities across the firm. Every employee has an equal obligation to raise issues or concerns, no matter how small, to protect the firm's reputation. We must ensure that our focus on our reputation is as grounded, consistent and pervasive as our focus on commercial success.'</blockquote>Despite the <a href="http://www.cnbc.com/id/41040099">poor reception</a> the report has generally received on Wall Street, Goldman might again be ahead of the pack in one major aspect. Instead of addressing governance failures in a simple rearrangement of committee armchairs and more internal procedures, they have taken a more root and branch approach. Under the rubric of improving governance, they aim to address: improving client relationship management, making adherence to the Business Principles reportable, better oversight of new products, taking transparency seriously, and incorporating culture and values into KPIs.<br />
<br />
At least Goldman is coming up with a public response to the seriously flawed culture of banking that led to the financial crisis. I hope, but don't expect, more international banks will follow Goldman's new approach to governance reform.Dr Andrew Tuckerhttp://www.blogger.com/profile/00202190276231758261noreply@blogger.com0tag:blogger.com,1999:blog-2043306316641323631.post-42622395180099300362011-01-06T02:44:00.000-08:002011-01-06T02:45:38.646-08:00Governance Beyond the Boardroom in Oil Industry<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: right; margin-left: 1em; text-align: right;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQVO8GEakN14EKAqEZOcuYm5x35VUqwS2DUB-TxsHb0_isMz94-1DdJXH4Q7veLOX1WDmRvZcoCQV2KKB8U1UGE9votygeu6BoR2la9Vif-vx57UWcJtUutmKzZCc3z_fBLlfjWcBxVqM/s1600/burning-oil-rig-explosion-fire-photo11.jpg" imageanchor="1" style="clear: right; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQVO8GEakN14EKAqEZOcuYm5x35VUqwS2DUB-TxsHb0_isMz94-1DdJXH4Q7veLOX1WDmRvZcoCQV2KKB8U1UGE9votygeu6BoR2la9Vif-vx57UWcJtUutmKzZCc3z_fBLlfjWcBxVqM/s320/burning-oil-rig-explosion-fire-photo11.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Deepwater Horizon Oil Spill</td></tr>
</tbody></table>Yesterday's scathing <a href="http://www.oilspillcommission.gov/sites/default/files/documents/Chapter4.pdf">report</a> by the presidential commission into the April 2010 Deepwater Horizon oil spill paints a picture of a disfunctional corporate culture at BP and across the oil industry. The report is very useful in explaining what exactly went wrong in the build up to the explosion. But the most interesting aspects for this blog's readers lie in the 'Overarching Management Failures by Industry' section [p. 122]:<br />
<br />
<blockquote>"The most significant failure at Macondo—and the clear root cause of the blowout—was a failure of industry management. Most, if not all, of the failures at Macondo can be traced back to underlying failures of management and communication. Better management of decisionmaking processes within BP and other companies, better communication within and between BP and its contractors, and effective training of key engineering and rig personnel would have prevented the Macondo incident. BP and other operators must have effective systems in place for integrating the various corporate cultures, internal procedures, and decisionmaking protocols of the many different contractors involved in drilling a deepwater well."<span class="Apple-style-span" style="color: #1a1a18; font-family: Times, 'Times New Roman', serif;"> </span></blockquote><br />
As this case demonstrates clearly, some of the greatest risks in the oil industry are faced along way from the boardroom. Without a robust governance culture that proactively addresses the integration of various corporate cultures, internal procedures, and decisionmaking protocols" of the various contractors", the report concludes that:<br />
<div style="clear: left; color: #333333; font-family: Arial, Helmet, Freesans, sans-serif; font-size: 1.077em; line-height: 18px; margin-bottom: 18px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-rendering: auto;"><blockquote><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: small;">"the root causes are systemic and, absent significant reform in both industry practices and government policies, might well recur."</span></span></blockquote><div class="separator" style="clear: both; text-align: center;"></div><span class="Apple-style-span" style="font-size: small;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">This isn't the current governance culture of the industry. Rather, it is summed up by</span></span><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"> </span><span class="Apple-style-span" style="color: #1a1a18; font-size: small; line-height: normal;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">BP engineer Brett Cocales in an email a few days before the explosion [quoted p. 116]:</span></span><br />
<blockquote style="color: black; font-family: Times; font-size: medium; line-height: normal;">“But, who cares, it’s done, end of story, [we] will probably be fine and we’ll get a good cement job.”</blockquote></div>Dr Andrew Tuckerhttp://www.blogger.com/profile/00202190276231758261noreply@blogger.com0tag:blogger.com,1999:blog-2043306316641323631.post-22526763449851665822011-01-05T03:42:00.000-08:002011-01-05T03:42:02.595-08:00Open Source Toolkit Framework goes liveThe project team is very pleased to announce that the 'Governance Beyond Boardroom' toolkit framework has gone live on the website today. It is open source and freely available <a href="http://www.business.bbk.ac.uk/news-and-events/governance-beyond-the-boardroom/outcomes">here</a>.<br />
<br />
Please all have a play and test it to destruction! I'm sure there are things we may have missed so let us know where we can improve. It's an ongoing research and practitioner project so all ideas for improvements most welcome!<br />
<br />
In the next few months we hope to be using the toolkit framework with some pilot sites. We have some volunteers already but are happy to work with more first movers. If your organisation would like to be involved in this innovative approach to governance, please let us know by replying to the project team at <span class="Apple-style-span" style="color: #021f8e; font-family: 'Lucida Grande'; font-size: 12px;"><span style="letter-spacing: 0.0px; text-decoration: underline;"><a href="mailto:andrew.tucker@pol-soc.bbk.ac.uk">andrew.tucker@pol-soc.bbk.ac.uk</a></span></span>.Dr Andrew Tuckerhttp://www.blogger.com/profile/00202190276231758261noreply@blogger.com0tag:blogger.com,1999:blog-2043306316641323631.post-9548270080048810152010-12-13T07:27:00.000-08:002010-12-13T07:27:25.855-08:00How badly run are banks?Interesting insight into the extent to which the British public thinks banks' governance has deteriorated over the last 22 years. According to the <a href="http://www.natcen.ac.uk/media/606958/nat%20british%20social%20attitudes%20survey%20summary%206.pdf">British Social Attitudes Survey</a>, the percentage of the public saying banks are well run has crashed from 91% in 1987, to 19% in 2009.<br />
<br />
This longterm trend provides some explanation why politicians and regulators seem happy to proceed with further intervention in banks' governance regimes despite a lack of concensus around the root causes of the credit crunch. While researchers and bankers have done a good job of examining limited aspects of the credit crunch, the wider narrative has congealed around banks being poorly run.<br />
<br />
And, to give this deterioration some context, over the same time period, the percentage of the public saying the NHS is well run has improved from 35% to 54%; trade unions has improved from 27% to 35%, and even the press has remained static at 39%. Surely time for the banks to take a more proactive role in explaining how their governance woes are being addressed?Dr Andrew Tuckerhttp://www.blogger.com/profile/00202190276231758261noreply@blogger.com0tag:blogger.com,1999:blog-2043306316641323631.post-63604667020937725452010-11-23T03:43:00.000-08:002010-11-23T03:43:43.549-08:00Reputation and the Board: Bridging the GapThank you to all those who attended the annual Henley Reputation Conference last week. The theme was 'Bridging the Gap' between the organisation and the board. An excellent day run by the <a href="http://www.henley.reading.ac.uk/executiveeducation/excellence/jmcr/cl-john-madejski-centre-Henley-Reputation-Conference-2010-Agenda.aspx">John Madejski Centre for Reputation</a> saw some excellent presentations and strong debate amongst the mainly private sector delegates.<br />
<br />
On behalf of the Governance Beyond Boardroom network, I gave a presentation and panel session on the results of the project. For a version of the presentation, see <a href="http://www.business.bbk.ac.uk/news-and-events/governance-beyond-the-boardroom/outcomes">here</a>.<br />
<br />
The panel session afterwards brought together <span class="Apple-style-span" style="color: #333333; line-height: 20px;"><span style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Simon Culhane (</span></span><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Chief Executive, Chartered Institute for Securities and Investment) and <span class="Apple-style-span" style="font-family: Times;"><span style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Peter Montagnon (</span></span><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Senior Investment Adviser, Financial Reporting Council). </span></span>The panel tackled two particularly pertinent questions from the practitioner audience:</span></span><br />
<br />
<b>1. How do you apply the analysis of governance culture?</b><br />
The audience seemed keen to see the fuller toolkit approach to be posted soon on the project's website. However, a delegate from a big four bank said that their induction focuses on the corporate culture but this learning fizzles after a few months when it is not backed up by the behaviour of senior managers. She concluded that there is a disconnect in large banks between what the HR function tries to promote in terms of a strong governance culture and what operational functions actually practice. A number of other delegates from FTSE100 companies agreed with this sentiment.<br />
<br />
<b>2. Does the person who draws up the corporate culture own the governance function?</b><br />
This question focuses on an essential causal direction and is particularly pertinent in light of the Mansion House conference last month (see previous post). While the event was held under Chatham House rules (so I cannot attribute comments), there was a split in the debate between those who argued that culture is a supporting part of the GRC function and those who believed that governance rules and procedures should be tailored towards producing a culture that supports board strategy. Of course, there is considerable crossover here and the potential for some productive future research.<br />
<br />
Both questions are key for organisations seeking to realign their governance culture with corporate strategy. Please let me know if these themes chime with your organisation's requirements so we can take forward the project's work together.Dr Andrew Tuckerhttp://www.blogger.com/profile/00202190276231758261noreply@blogger.com0tag:blogger.com,1999:blog-2043306316641323631.post-61666948120085459562010-11-17T06:02:00.000-08:002010-11-17T06:02:28.011-08:00Regulator in the Boardroom?<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: right; margin-left: 1em; text-align: right;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjOSMNWbJ2lDGSxEwWL19AoMQQDSIVBcJkJS2Q2F5KvHTdhCrz_VnH2DPOdGjVenOYcLASyW_X0QbFmo-ziUQ2O8ZgJJUf4pAFsyNAM71UnpQUHTFCgJiD6L0jiSjwZizc5sT-xBfDCsc/s1600/Hector-Sants-backdrp.jpg" imageanchor="1" style="clear: right; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjOSMNWbJ2lDGSxEwWL19AoMQQDSIVBcJkJS2Q2F5KvHTdhCrz_VnH2DPOdGjVenOYcLASyW_X0QbFmo-ziUQ2O8ZgJJUf4pAFsyNAM71UnpQUHTFCgJiD6L0jiSjwZizc5sT-xBfDCsc/s1600/Hector-Sants-backdrp.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Hector Sants, "Culture Inspector"?</td></tr>
</tbody></table>You may have heard a rumour circulating that the FSA wants to put a 'culture inspector' on the board of banks and other financial institutions. As Anthony Hilton <a href="http://www.thisislondon.co.uk/markets/article-23894840-can-big-brother-board-members-give-banks-ethics.do">writes</a> in the <i>Evening Standard</i> recently, this is a canard but it is not necessarily a bad idea.<br />
<br />
<blockquote>...trust won't be restored until people have confidence in the City's ethics and in many cases these are inseparable from the firm's culture. So, vague though the term is, culture is going to be a continuing concern for regulators, politicians and the public.</blockquote>This continuing concern can be traced more accurately to a <a href="http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2010/1004_hs.shtml">speech</a> last month by Hector Sants, Chief Executive of the Financial Standards Authority when he said:<br />
<blockquote>It is crucial that we improve behaviour and judgements. To do this we must address the role that culture and ethics play in shaping these.</blockquote>Sants went on to suggest how this might work:<br />
<blockquote>For regulators, the starting point should be that we want the firm to have a culture which encourages individuals to make the appropriate judgements and deliver the outcomes we are seeking... The regulator's focus should therefore be on what an acceptable culture looks like and what outcomes that drives... It is neither feasible nor desirable for the regulator to specify the type of culture a firm has, nor the measures and metrics by which this should be assessed. What should matter to the regulator are the outcomes that the culture delivers and that the firm can demonstrate it has a framework for assessing and maintaining it.</blockquote>This is the crux of the issue - can firms demonstrate that their culture governance framework (assuming they have one!) is robust, accurate and produces a culture tied closely to its corporate strategy. Of course, this is much harder and complex than at first glance. Just think how such a framework might work in your team/department before considering how such a framework can be rolled out across a major institution, and still retain its usefulness.<br />
<br />
Developing such a culture governance framework is further complicated by Sants' further correct observation that:<br />
<div class="separator" style="clear: both; text-align: center;"></div><blockquote>... a box-ticking approach to regulating culture will not work. The regulator must focus on the actions a firm takes and whether the board has a compelling story to tell about how it ensures it has the right culture that rings true and is consistent with what the firm does.</blockquote>So where does that leave Boardrooms in the City? Simply, they need to act rapidly to develop a culture governance framework that can stand up to regulatory scrutiny. While the FSA won't proscribe a framework tool, boards need to develop one based on leading academic research and best practice. In this, board members should look to the Governance Beyond Boardroom network for where to start.Dr Andrew Tuckerhttp://www.blogger.com/profile/00202190276231758261noreply@blogger.com0tag:blogger.com,1999:blog-2043306316641323631.post-39870161864514664452010-10-29T04:17:00.000-07:002010-11-02T04:30:04.735-07:00Welcome to the Governance Beyond Boardroom NetworkThank you to all those colleagues who attended the original seminar at the end of September 2010. It was great to see you all there, to see the lively debate amongst the group, and to see some productive contacts being made throughout the morning. Thank you also to those have already provided feedback on how the project progresses, please keep the suggestions coming - this is an open network where all ideas are welcome!<br /><br />The presentations are now live on the project's website (<a href="http://www.business.bbk.ac.uk/news-and-events/governance-beyond-the-boardroom/governance-beyond-the-boardroom">click here</a>) , as is a link to this blog. This medium seems to be the quickest and easiest way to link you all up. So please reply to these postings directly or send me your comments and I will post as new topics. I will create an email group to inform you when a new postings appear, and aim to send updates monthly.<br /><br />As we said at the seminar, we believe the 'Governance Beyond Boardroom' agenda opens up a number of new research streams. We also agreed that the network is a good vehicle for matching potential projects with both research council and private sector funding. <span style="font-weight: bold; font-style: italic;">Please have a look through the list below and make additions/suggestions so we can start to build a picture for which projects we should seek funding.</span> I will be posting a separate blog on how we can prioritise this list.<br /><br />The 12 potential research projects that seemed to be most interesting amongst the seminar participants are (in no particular order):<br /><br /><span style="font-weight: bold;">1. A Stakeholder Definition of Corporate Governance</span>. Issues raised include: status of legislative and regulatory definition; understanding the relationship between profit maximising, enlightened shareholders and stakeholder focus; who is a stakeholder; empirical measures for stakeholder engagement.<br /><br /><span style="font-weight: bold;">2. Management of the <span class="blsp-spelling-error" id="SPELLING_ERROR_0">GRC</span> (governance, risk and compliance) function.</span> Issues raised include: management skills weakness; who in the organisation sets the governance culture; relative importance of non-profit generating corporate functions.<br /><br /><span style="font-weight: bold;">3. Governance Beyond the Boardroom in other sectors.</span> Issues raised include: is the financial services sector peculiar in the role/importance of <span class="blsp-spelling-error" id="SPELLING_ERROR_1">SubAgents</span>; what industry-specific issues can be isolated in other sectors; can/should regulators identify core vs. sector-specific governance issues?<br /><br /><span style="font-weight: bold;">4. Exploring the Principal-Agent-<span class="blsp-spelling-error" id="SPELLING_ERROR_2">SubAgent</span> model.</span> Issues raised include: the 'dotted line' link between Principal and <span class="blsp-spelling-error" id="SPELLING_ERROR_3">SubAgent</span>; whether <span class="blsp-spelling-error" id="SPELLING_ERROR_4">CEOs</span> and Boards recognise culture as an operational concept; whether this model presumes the breaking up of large banks; sequence/dynamic of the issues identified in the research (i.e. 'what is corporate governance' needs to come before 'drivers of corporate governance' or 'business case').<br /><br /><span style="font-weight: bold;">5. The linking architecture of governance between junior and senior levels.</span> Issues raised include: the role, purpose and practice of Board subcommittees; corporate norms vs. rules; case studies of corporate induction programmes.<br /><br /><span style="font-weight: bold;">6. Complexity as a link between corporate culture, strategy and governance.</span> Issues raised include: building on the work of the Complexity Group led by Prof Eve <span class="blsp-spelling-error" id="SPELLING_ERROR_5">Mitleton</span>-Kelly (<span class="blsp-spelling-error" id="SPELLING_ERROR_6">LSE</span>) and Prof Chris <span class="blsp-spelling-error" id="SPELLING_ERROR_7">Mallin</span> (Birmingham); identifying how to gain research access to large financial institutions; potential for in-depth study of financial services institution.<br /><br /><span style="font-weight: bold;">7. The context of corporate culture.</span> Issues raised include cross-cultural Joint Venture projects; universal standards of corporate behaviour; impact of 2010 Bribery Act.<br /><br /><span style="font-weight: bold;">8. Alternatives to the <span class="blsp-spelling-error" id="SPELLING_ERROR_8">tickbox</span> mentality. </span>Issues raised include: development and assessment of qualitative metrics; narrative reporting options; regulator assessment on non-quantitative metrics.<br /><br /><span style="font-weight: bold;">9. The business case for stronger governance. </span>Issues raised include: correlation between strengthening governance regimes and bottom line effect; other relevant metrics (e.g. reputation, recruitment & retention, analyst assessment); sector-specific business success metrics (e.g. brand awareness in <span class="blsp-spelling-error" id="SPELLING_ERROR_9">FMCG</span> sector).<br /><br /><span style="font-weight: bold;">10. What does good governance look like?</span> Issues raised include: case study development; criteria of good governance; is good governance the absence of poor governance?<br /><br /><span style="font-weight: bold;">11. Who 'lives' corporate culture?</span> Issues raised include: informal reporting structures; introducing corporate culture <span class="blsp-spelling-error" id="SPELLING_ERROR_10">KPIs</span>; Board-level engagement with culture programmes.<br /><br /><span style="font-weight: bold;">12. How to instill a corporate culture.</span> Issues raised include: efficacy of training programmes; quantitative metrics of culture change programmes; different delivery mechanisms of culture change programmes.<br /><br />I am sure there are many more suggestions that I have missed! Please reply to this blog to add more research streams and suggestions.<br /><br />Many thanks, AndrewDr Andrew Tuckerhttp://www.blogger.com/profile/00202190276231758261noreply@blogger.com2